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Saturday, January 10, 2009


Today's Buggy Topic

Found at the Marginal Revolution --- a very good web-site run by Professor Tyler Cowen, an uncommonly flexible libertarian economist --- it deals with the question found in the subject-title above.  Prof bug's lengthy comments there also link to an earlier, more data-detailed analysis of his posted at the same web-site a month or so ago . . . specifically, on December 2nd, 2008.

Click here for the buggy stuff and link.

Next  Bugged-Out Post Already Done

It just needs some formatting, and it will deal with the causes of long-term economic growth . . . long-term meaning several generations, and in the case of the richest countries for well over a century: come to that, over two centuries for Great Britain --- the pioneer of the industrial revolution.  Among other things, the buggy commentary will probably have to be divided into two different published posts . . . what with its high-pulsating length, close to bursting the bounds of prof bug's Internet end-server's computer chips. 

After reading those posts, you should have a good working idea of why there has emerged since the start of the 19th century such a huge gap in wealth across countries.  And why, more to the point, only some countries --- West European and their English-speaking spin-offs like the USA, followed in the late 19th century by Japan and after WWII in the rest of Northeast Pacific-Asia (including to an extent China now) --- have been able to exploit all the advantages of economic backwardness: in particular, those set out and explained in theories of convergence catch-up growth. 

Such As, To Be More Concrete:

  • Having far more investment opportunities, once those countries can launch themselves onto a path of long-term economic development, than the richest countries at or near the technological frontier.

  • Being able to import advanced technologies --- always very expensive to develop by the lead richest countries --- at bargain-basement rates, either through multinational activity or by licensing or by building around existing patents (a Japanese specialty at one time) or by outright piracy . . . now a Chinese specialty.

  • Being able, simultaneously --- assuming a country's population is sufficiently educated and disciplined to work effectively with modern and advanced technologies --- not just to import those technologies by one means or another but, with efficient enough policies and market-flexibility, to diffuse them widely in the national economy over time.

  • Enjoying access to rich markets abroad for their exports . . . which helps even small countries like Taiwan (20 million) or Singapore (5-6 million) or South Korea (50 million) develop large business firms able to benefit from economies of scale.

  • Not least, adapt to local national conditions --- including institutions and culture --- the "best practices" or organizing and managing small and large firms.  Such adaptation, note, can also include sending large numbers of talented students abroad to study in the universities of the richer, more developed countries.

  • Working with multinational firms, certain countries with sound enough institutions and policies and an educated population can also have access not just to their technologies, but also to their capital investments --- if need be --- and to their marketing on a global scale.

What You'll Also Learn 

Among those learning exercises, a few will stand out:

  • Why convergence catch-up growth has worked with the European Union and still does, and why, all the same, the American lead in technological innovation--- multi-factor productivity in growth-models  --- has belied the expectation that countries able to qualify for membership in the "convergence club" will end up sooner or later with the same levels of productivity and per capita income.  The US lead over Japan and the big rich countries in the EU, believe it or not, is not much lower in 2009 than it was in 1909.


  • Why, in turn, technological innovation is the major driving force of long-term economic progress. . . provided the countries able to sustain long-term growth enjoy institutions and policies that limit corruption among political and economic elites; limit too other predatory practices of powerful elites --- such as developing tight-knit crony patron-client networks and membership in them as the only major way to advance socially and economically; promote people in the private and public spheres thanks to clear accomplishment, not mutual back-scratching; and decentralize a great deal of decision-making to individual firms and other economic and now economic organizations such as free universities, free research institutes, a free media, and free professional associations.

  • Why, too, the only effective way for countries to climb up a technological ladder is to let the forces of "creative destruction" operate over time --- an insight developed by Joseph Schumpeter, an Austrian-born Harvard economist in the 1930s and 1940s.  It's an insight that draws attention to the problems of governmental policymakers finding the right balance in regulatory apparatus that prevents excesses --- especially in the financial realm --- of the sorts that we have witnessed recently, while simultaneously not regulating to the point of choking off the necessary decline in older, more standardized industries in order to free up talented labor and capital for expanding in the new and more promising industries found at the technological frontier.